SEATTLE, July 8, 2021 /PRNewswire/ -- Starter home
prices are growing almost seven times faster than renter incomes,
making what was likely already the biggest challenge for first-time
home buyers ― saving for a down payment ― even more difficult. But
there is good news for today's first-time buyers: With mortgage
rates near record lows, monthly payments can remain affordable even
with a smaller down payment, and flexible work options are
providing new opportunities for many to buy a home in a
less-expensive city.
If an average renter household saves 10% of its income ― an
aggressive target given the average renter savings rate is
2.4% ― it would take about six years and five months to save
enough for a 20% down payment on today's typical starter home,
worth about $148,500. That's a full
year longer than it would have taken to save for a down payment on
a starter home five years ago, a new Zillow®
analysis indicates. And as prices rise at a record pace, it
may take even longer for today's renters to save up for tomorrow's
homes.
"Without the equity from a previous home sale, first-time home
buyers face more challenges in coming up with a down payment," says
Zillow economic data analyst Nicole
Bachaud. "In a housing market where prices are rising at
record rates, especially when compared to renter incomes, the
ever-increasing sum of a 20% down payment can feel out of reach.
The good news is that buyers who want to take advantage of today's
low mortgage rates can do so without putting a full 20% down ― most
conventional mortgages allow as little as 3% to 5%. That lower
upfront payment comes with higher monthly payments, but the
opportunity to build equity can outweigh those extra costs for
many."
Prices for even the most affordable homes are rising quickly. As
of May, homes priced in the bottom third of a given metro area,
often thought of as starter homes for first-time buyers, are
growing faster than the typical mid-market home in 42 of the
50 largest U.S. metro areas. Those who are just starting to save
may need to factor in this rapid pace of home value growth. Zillow
forecasts 14.9% appreciation over the next year, which would
mean renters need to save an additional $369 per month just to keep up.
Renters in California face the
biggest barriers to saving for down payments. San Francisco renters earn nearly twice as
much money as the typical U.S. renter, yet home prices are so high
that it would take 17 years and five months ― 11 years longer than
the national average ― to save enough to put 20% down on a local
starter home. It would take even longer in Los Angeles and San
Diego. Among the top 50 metro areas, renters in Birmingham, Memphis and Detroit could save for a down payment the
fastest.
While this may seem daunting, it's possible to secure a mortgage
while putting less than 20% down. In fact, a majority (64%) of
first-time buyers do so, and one-quarter put down 5% or
less.i Renters can save up a 10% down payment on a
typical starter home after three years and three months, and
accruing a 5% down payment would take only a year and seven
months.
A smaller down payment, of course, comes with tradeoffs on the
monthly mortgage payment, such as the private mortgage
insurance lenders often require borrowers to carry. At today's
rates, the mortgage payment on a typical starter home with 20% down
would be $501, while a 5% down
payment would be $730 ― still only
18.9% of a typical renter's monthly income, well below the 30% rule
of thumb for housing affordability. Buyers may decide the benefits
of homeownership and the chance to build equity sooner outweigh the
additional housing cost burden each month.
The new freedom for many to work remotely and live anywhere as
part of the Great Reshuffling may also help many renters move
into homeownership, as renters in high-cost areas can more easily
save for a home in a less expensive locale. A typical San Francisco renter, if able to do their job
remotely, could save enough for a 20% down payment on a starter
home in Austin in about six years
and eight months, and a similar home in Phoenix in five years and seven months. A
similar renter in Boston could
save enough for a 20% down payment on a starter home in
Miami in half the time it would
take for a local starter home ― six and a half years, instead of 13
years. On the other hand, a typical renter in Austin hoping to make a move to San Francisco would need to save for 28 years
and three months.
Because of differences in incomes and the lingering impacts of
historical inequities, it is more difficult for Black and Latinx
renters to come up with a down payment on their first home. It
would take six years and one month for a white renter earning the
median income, and four and a half years for an Asian American
renter earning the median income to save for a 20% down payment on
a starter home, compared with nine years and seven months for a
Black renter, and seven years and eight months for a Latinx
renter.
Black and Latinx home buyers are more likely than white home
buyers to say they saved at least part of their down payment
themselvesii ― which could be a possible consequence of
the racial wealth gap, as Black and Latinx buyers are often less
able to rely on family to help out financially. Along with
structural barriers such as less access to credit and higher
rates of mortgage-application denials, this is a contributing
factor to the racial homeownership gap.
|
|
Years to Save for
a Down Payment on
a Starter Home (10% savings rate)
|
Monthly
Mortgage
Payment**
|
Metro
Area*
|
Typical Home
Value for a Starter
Home
|
20%
Down
|
10%
Down
|
5%
Down
|
20%
Down
|
10%
Down
|
5%
Down
|
United
States
|
$148,527
|
6.4
|
3.2
|
1.6
|
$709
|
$900
|
$938
|
New York,
NY
|
$346,426
|
11.7
|
5.9
|
2.9
|
$1,686
|
$2,131
|
$2,220
|
Los Angeles,
CA
|
$562,810
|
17.6
|
8.8
|
4.4
|
$2,309
|
$3,031
|
$3,177
|
Chicago,
IL
|
$173,458
|
7.5
|
3.7
|
1.9
|
$930
|
$1,153
|
$1,198
|
Dallas–Fort Worth,
TX
|
$206,828
|
7.4
|
3.7
|
1.8
|
$1,136
|
$1,401
|
$1,455
|
Philadelphia,
PA
|
$177,999
|
7.7
|
3.9
|
1.9
|
$899
|
$1,128
|
$1,174
|
Houston,
TX
|
$173,750
|
7.2
|
3.6
|
1.8
|
$973
|
$1,197
|
$1,242
|
Washington,
D.C.
|
$333,276
|
9.3
|
4.7
|
2.3
|
$1,445
|
$1,873
|
$1,959
|
Miami–Fort
Lauderdale, FL
|
$199,601
|
8.3
|
4.1
|
2.1
|
$980
|
$1,237
|
$1,288
|
Atlanta,
GA
|
$195,579
|
7.4
|
3.7
|
1.8
|
$896
|
$1,148
|
$1,198
|
Boston, MA
|
$399,275
|
13.0
|
6.5
|
3.3
|
$1,834
|
$2,347
|
$2,450
|
San Francisco,
CA
|
$846,415
|
17.4
|
8.7
|
4.4
|
$3,470
|
$4,557
|
$4,776
|
Detroit,
MI
|
$103,890
|
5.0
|
2.5
|
1.3
|
$533
|
$667
|
$694
|
Riverside,
CA
|
$337,914
|
13.2
|
6.6
|
3.3
|
$1,497
|
$1,931
|
$2,018
|
Phoenix,
AZ
|
$270,560
|
10.6
|
5.3
|
2.7
|
$1,133
|
$1,481
|
$1,551
|
Seattle,
WA
|
$440,927
|
12.2
|
6.1
|
3.0
|
$1,913
|
$2,479
|
$2,593
|
Minneapolis–St. Paul,
MN
|
$249,454
|
10.3
|
5.2
|
2.6
|
$1,197
|
$1,518
|
$1,582
|
San Diego,
CA
|
$555,114
|
17.9
|
9.0
|
4.5
|
$2,305
|
$3,018
|
$3,161
|
St. Louis,
MO
|
$109,997
|
5.3
|
2.7
|
1.3
|
$552
|
$694
|
$722
|
Tampa, FL
|
$183,060
|
8.0
|
4.0
|
2.0
|
$899
|
$1,134
|
$1,182
|
Baltimore,
MD
|
$204,501
|
7.8
|
3.9
|
2.0
|
$922
|
$1,184
|
$1,237
|
Denver, CO
|
$391,057
|
12.5
|
6.3
|
3.1
|
$1,647
|
$2,149
|
$2,250
|
Pittsburgh,
PA
|
$104,869
|
5.4
|
2.7
|
1.3
|
$538
|
$673
|
$700
|
Portland,
OR
|
$389,626
|
12.7
|
6.4
|
3.2
|
$1,730
|
$2,230
|
$2,331
|
Charlotte,
NC
|
$188,506
|
7.8
|
3.9
|
2.0
|
$841
|
$1,083
|
$1,132
|
Sacramento,
CA
|
$392,326
|
14.2
|
7.1
|
3.6
|
$1,695
|
$2,199
|
$2,301
|
San Antonio,
TX
|
$160,885
|
7.2
|
3.6
|
1.8
|
$862
|
$1,069
|
$1,110
|
Orlando,
FL
|
$206,898
|
8.3
|
4.2
|
2.1
|
$985
|
$1,250
|
$1,304
|
Cincinnati,
OH
|
$144,529
|
7.0
|
3.5
|
1.8
|
$723
|
$908
|
$946
|
Cleveland,
OH
|
$109,078
|
5.7
|
2.8
|
1.4
|
$588
|
$728
|
$756
|
Kansas City,
MO
|
$142,629
|
6.0
|
3.0
|
1.5
|
$713
|
$896
|
$933
|
Las Vegas,
NV
|
$245,552
|
11.0
|
5.5
|
2.8
|
$1,041
|
$1,356
|
$1,419
|
Columbus,
OH
|
$153,948
|
6.4
|
3.2
|
1.6
|
$806
|
$1,004
|
$1,044
|
Indianapolis,
IN
|
$133,009
|
6.1
|
3.0
|
1.5
|
$620
|
$791
|
$825
|
San Jose,
CA
|
$940,490
|
16.6
|
8.3
|
4.1
|
$3,802
|
$5,009
|
$5,253
|
Austin, TX
|
$323,686
|
10.8
|
5.4
|
2.7
|
$1,676
|
$2,091
|
$2,175
|
Virginia Beach,
VA
|
$190,730
|
8.0
|
4.0
|
2.0
|
$854
|
$1,099
|
$1,148
|
Nashville,
TN
|
$227,995
|
8.5
|
4.3
|
2.1
|
$1,001
|
$1,293
|
$1,352
|
Providence,
RI
|
$290,309
|
14.1
|
7.0
|
3.5
|
$1,423
|
$1,796
|
$1,871
|
Milwaukee,
WI
|
$140,699
|
6.4
|
3.2
|
1.6
|
$733
|
$914
|
$950
|
Jacksonville,
FL
|
$173,644
|
6.9
|
3.5
|
1.7
|
$822
|
$1,045
|
$1,090
|
Memphis,
TN
|
$87,918
|
4.7
|
2.4
|
1.2
|
$439
|
$552
|
$575
|
Oklahoma City,
OK
|
$112,498
|
5.8
|
2.9
|
1.5
|
$572
|
$716
|
$745
|
Louisville,
KY
|
$134,060
|
6.6
|
3.3
|
1.7
|
$623
|
$795
|
$830
|
Hartford,
CT
|
$189,579
|
9.1
|
4.5
|
2.3
|
$1,028
|
$1,271
|
$1,320
|
Richmond,
VA
|
$190,164
|
8.2
|
4.1
|
2.0
|
$826
|
$1,071
|
$1,120
|
New Orleans,
LA
|
$155,339
|
9.0
|
4.5
|
2.3
|
$743
|
$942
|
$982
|
Raleigh,
NC
|
$229,948
|
8.3
|
4.2
|
2.1
|
$1,019
|
$1,314
|
$1,374
|
Birmingham,
AL
|
$91,806
|
4.7
|
2.3
|
1.2
|
$396
|
$514
|
$537
|
Salt Lake City,
UT
|
$372,094
|
13.7
|
6.9
|
3.4
|
$1,550
|
$2,027
|
$2,124
|
*Table ordered by market size
**Total monthly payments assume a 3% mortgage rate, including
property taxes, insurance and PMI for down payments of less than
20%
About Zillow Group
Zillow Group, Inc.
(NASDAQ: Z and ZG) is reimagining real estate to make it easier to
unlock life's next chapter.
As the most-visited real estate website in the United States, Zillow® and its affiliates
offer customers an on-demand experience for selling, buying,
renting or financing with transparency and nearly seamless
end-to-end service. Zillow Offers® buys and sells homes directly in
dozens of markets across the country, allowing sellers control over
their timeline. Zillow Home Loans™, our affiliate lender, provides
our customers with an easy option to get pre-approved and secure
financing for their next home purchase. Zillow recently launched
Zillow Homes, Inc., a licensed brokerage entity, to streamline
Zillow Offers transactions.
Zillow Group's brands, affiliates and subsidiaries include
Zillow®; Zillow Offers®; Zillow Premier Agent®; Zillow Home Loans™;
Zillow Closing Services™; Zillow Homes, Inc.; Trulia®; Out East®;
StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal
Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).
i Zillow Consumer Housing Trends Report,
2020
ii Zillow Consumer Housing Trends Report,
2020
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